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Posts Tagged ‘overtime’

California Appellate Court Concludes That Employer Lawfully Rounded Employee Time Up and Down

Posted on: July 12th, 2018

By: Laura Flynn

The Second District of the California Court of Appeal has ruled that calculating payroll by automatically rounding workers’ hours either up or down to the nearest quarter-hour is legal as long as it does not result in workers being systematically underpaid over time. In a published opinion, the three-judge panel found the payroll system implemented by a Southern California hospital system was neutral both on its face and in the way it was applied.

Under the employer’s payroll system, an hourly worker who clocked in between 6:53 and 7:07, was paid as if they clocked in at 7:00.  Meal breaks that lasted between 23 and 37 minutes were rounded to 30 minutes.  The legality of the calculation method was challenged by two former employees who alleged they weren’t paid properly or given adequate meal breaks or rest periods.  The primary allegation was that the rounding system did not comply with the California Labor Code because it did not use employees’ exact clock-in and clock-out times.

A statistical expert analyzed the time records for all of the hospital employees over a four-year period.  Although some employees lost work time, the remainder either gained time or broke even. Overall, the calculation method resulted in the employer over compensating employees.  The Appellate Court held a rounding system is valid if it “average[s] out sufficiently,” rejecting claims that minor discrepancies in an individual employee’s wage calculations establish that the employee is entitled to assert a claim for underpayment.

The Court relied on Section 785.48 of title 29 of the Code of Federal Regulations which allows employers to round work time as long as it doesn’t result in workers being underpaid over statistically significant periods of time. California’s Division of Labor Standards Enforcement has adopted the federal regulation as part of its enforcement standards.  The Court’s opinion confirms Section 785.48 and the policies underlying it “apply equally to the employee-protective policies embodied in California labor law.”

AHMC Healthcare, Inc. v. Superior Court, filed 6/25/18, Los Angeles Superior Court Case No. B285655.

If you have any questions or would like more information, please contact Laura Flynn at [email protected].

California’s New Independent Contractor Test

Posted on: July 11th, 2018

By: Christine Lee

On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court adopted an extremely broad view of workers who will be deemed “employees” as opposed to “independent contractors” for purposes of claims alleging violations of California’s Wage Orders.  This decision will undoubtedly lead to increased litigation challenging classification of workers across the state as employers will now have a much higher burden to defeat such claims.

Under the new “ABC” test set forth in Dynamex, a worker will be presumed to be an employee unless the hiring entity proves all of the following:

(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact; and

(B) The worker performs work that is outside the usual course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.

An employer’s failure to establish any one of the three factors will result in a determination that the worker is an employee as a matter of law.  The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which impose obligations related to minimum wages, overtime, and required meal and rest breaks. It is presently unclear how the case applies to claims arising under other statutes.

We encourage all companies doing business in California to immediately evaluate classification of outside contractors or vendors.  Under Dynamex, the vast majority of persons performing services for a company will be considered employees if they are performing work within the usual course of the company’s business, even if those individuals act autonomously and are free from control or direction of the hiring entity.

Therefore, we strongly encourage employers to consult with counsel to evaluate and consider reclassifying independent contractors or risk finding themselves on the losing end of an expensive and painful misclassification case.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

Bonus or No Bonus? California Supreme Court Clarifies Calculation of Overtime

Posted on: April 16th, 2018

By: Christine C. Lee

Calculating the correct overtime pay rate for non-exempt employees just got a little more complicated for California employers who elect to pay bonuses.  In the recent case of Alvarado v. Dart Container Corporation of California, plaintiff Hector Alvarado, a non-exempt warehouse worker, was paid a flat “attendance bonus” of $15 per day in addition to his hourly rate if he worked a full shift on a Saturday or Sunday.  Because there was no California statute, regulation or wage order directing how employers should calculate the rate of pay for overtime purposes when such non-discretionary flat sum bonuses are paid, the employer, Dart Container Corporation of California, followed the methodology set forth in the federal Fair Labor Standards Act (FLSA).

Dart calculated the overtime pay rate by taking Mr. Alvarado’s total earnings in the relevant pay period, which included the attendance bonuses, and dividing that figure by all hours worked in the pay period including overtime.  Using this figure, Dart paid Mr. Alvarado 1.5 times this rate for every overtime hour worked.

To thank his employer for the bonuses, Mr. Alvarado sued Dart in a wage and hour class action alleging Dart miscalculated the overtime rate of pay.  He argued Dart should have divided the period’s earnings and attendance bonuses only by the amount of non-overtime hours worked which would have resulted in a marginally higher overtime rate of pay.  In support of his position, Mr. Alvarado relied on the California Division of Labor Standards Enforcement’s (DLSE) Enforcement Policies and Interpretations Manual which states that when employees earn a flat sum bonus, their overtime rate is determined by dividing the regular and bonus earnings only by the regular non-overtime hours worked during the relevant pay period.  The case reached the California Supreme Court for guidance.

There, Dart argued because its formula complied with the federal FLSA when California law gave no guidance, its methodology was lawful.  Dart also argued the DLSE Manual was merely an underground regulation and interpretation of the law and therefore was not entitled to any special deference.  The Court agreed the DLSE manual was not entitled to special deference.  Nevertheless, the Court held “[W]e are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee’s interests.”  The Court found Mr. Alvarado’s method was “marginally more favorable to employees” and should now be the law of California.  To add further ambiguity to its ruling, the Court cautioned this methodology only applied to non-production related flat sum bonuses and not necessarily to production-based bonuses such as piece rate or commission-based bonuses.

Dart requested only prospective application of the Court’s rulings since California law had been unclear up to that point.  The Court refused the request, leaving Dart on the hook for 4+ years’ worth of unpaid overtime, penalties for inaccurate wage statements, penalties under Labor Code §203 and California’s Private Attorney General Act, and attorney’s fees and costs.

The unfortunate result of this decision is that employers may stop bonusing non-exempt employees and/or flee California to avoid this kind of catastrophic litigation.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

 

Service Advisors Once Again Exempt From Overtime

Posted on: April 3rd, 2018

By: Brad Adler & Michael Hill

After years of back and forth in the lowers courts, the Supreme Court has ruled that service advisors at auto dealerships are exempt employees under the Fair Labor Standards Act (“FLSA”).  It’s the rare case that goes to the Supreme Court twice.  But after taking the scenic route through the federal court system, the Supreme Court’s Encino Motorcars, LLC v. Navarro decision finally has arrived and brought much-needed clarity to auto dealerships across the country.

As we have written in several previous blogs, the confusion began in 2011, when the U.S. Department of Labor (“DOL”) suddenly (and without explanation) reversed its decades-old position that service advisors were exempt from the FLSA.  The text of the statute at issue provides that “salesman . . . primarily engaged in selling or servicing automobiles” at covered dealerships are exempt.  Since the 1970s, courts and even the DOL itself took the position that a service advisor was such a “salesman.”  In 2011, however, the DOL threw a monkey wrench under the hood by issuing a new rule that “salesman” under the statute no longer would include a service advisor.

This ruling from the Supreme Court, however, applies a straightforward interpretation of the statute’s language and holds that a service advisor is a “salesman . . . primarily engaged in . . . servicing automobiles.”  According to Justice Clarence Thomas, who authored the majority’s opinion, “servicing automobiles” includes more than just working underneath the hood of a car.  “Servicing” is a concept broad enough to encompass meeting with customers, listening to their concerns, suggesting or recommending certain repairs and maintenance, selling new accessories or replacement parts, following up with customers as services are performed, and explaining the repairs and maintenance work to customers when they come to pick up their vehicles.

The Encino Motorcars decision also brought back a special souvenir for employers in other industries.  In reversing the Ninth Circuit’s decision, the Supreme Court expressly rejected the oft-quoted principle that exemptions to the FLSA “should be construed narrowly.”  It now is the Supreme Court’s view that, because the FLSA does not actually say its exemptions should be interpreted narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.”  As there are over two dozen exemptions just to the overtime-pay requirement of the FLSA, Encino Motorcars may provide some ammunition for employers fighting exemption disputes in the future.

For questions about this case or how it may impact your business, or other questions or advice regarding wage and hour laws, please contact [email protected] or [email protected].

Congress Steps Into Tip-Pooling Fight

Posted on: March 23rd, 2018

By: Timothy J. Holdsworth

We wrote previously about the background on the tip-pooling regulations and the DOL’s Notice of Proposed Rulemaking (“NPR”) that would allow tip-pooling arrangements that include employees who do not regularly and customarily receive tips under the Fair Labor Standards Act (“FLSA”). The DOL received a considerable number of comments on the NPR, some of which worried that the NPR would allow employers to keep their workers’ tips.

Buried in the spending bill Congress passed (pages 2025-2027 if you are dying to read it) is a rider that will affect the current U.S. Department of Labor (“DOL”) laws on tips. The bill proposes language that prohibits an employer, including managers and supervisors, from keeping tips received by employees. This prohibition would apply regardless of whether the employer takes the tip credit. The rider also would make employers liable to employees for any tips unlawfully kept by the employer.

If the bill is signed by President Trump, these may substantially affect any tip-pooling arrangements employers planned to enact under the NPR. It is also unclear if the DOL may try to revise the NPR in any way.

The provision would also subject employers to new liability under the FLSA. Just last year, the Eleventh Circuit (Alabama, Florida, and Georgia) in Malivuk v. Ameripark, LLC held that the FLSA does not authorize an employee to sue her employer solely for an employer allegedly withholding her tips when the employee does not allege that she received less than the minimum wage or less than what she was entitled to for overtime work. The rider creates a new cause of action solely for withheld tips.

If you have any questions about what these potential changes may mean for your business or would like more information on navigating wage and hour laws, please contact Tim Holdsworth at [email protected].